What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-08-14 compared with 2024-05-15 · 244 added, 359 removed, 252 unchanged (71% of the section changed)

24 unchanged sentences

Preferred stock, par value $ 0.0001 per share Authorized:

10,000,000 shares at March 31 , 2024 and December

10,000,000 shares at June 30 , 2024 and December 31,

Issued and outstanding:

0 shares at March 31 , 2024 and December 31, 2023

shares at June 30 , 2024

and December 31, 2023

Common stock, par value $ 0.0001

per share Authorized:

100,000,000 shares at March 31 , 2024 and December 31, 2023 ;

100,000,000 shares at June 30 , 2024 and December 31, 2023 ;

Issued and outstanding:

3,680,661 shares at March 31 , 2024 and 3,618,431 at December 31, 2023

shares at June 30 , 2024

and 3,618,431 at December 31, 2023

Additional paid-in capital

6 unchanged sentences

CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS (Unaudited)

STATEMENTS OF

OPERATIONS (Unaudited)

(in thousands, except per share amounts)

7 unchanged sentences

(Loss) before taxes

Income tax benefit

Income tax (expense) benefit

Basic (loss) per share

8 unchanged sentences

Three Months Ended

Six Months Ended

Other comprehensive income (loss):

Change in unrealized (loss) gain on investments, net of tax

Change in unrealized gain (loss) on investments, net of tax

Change in foreign currency translation, net of tax

10 unchanged sentences

Beginning balances

Common stock issued for options/RSUs/restricted stock, net

Common stock issued for equity awards, net

Stock-based compensation

5 unchanged sentences

Beginning balances

Change in unrealized investment (loss) gain, net

Change in unrealized investment gain/loss, net

Change in foreign currency translation, net

8 unchanged sentences

(in thousands)

Three months Ended

Six Months Ended

Cash flows from operating activities:

9 unchanged sentences

Cash flows from investing activities:

Purchase of property and equipment

Purchase of investments

2 unchanged sentences

Cash flows from financing activities:

Payment of payroll taxes on restricted stock and vested RSUs

Payment of dividends

Payment of payroll taxes on equity awards

Net cash used in financing activities

3 unchanged sentences

Non-cash transactions

ROU asset and lease liability at lease modification date

ROU asset and lease liability at lease modification date (Note 8)

See accompanying notes to condensed consolidated financial statements.

5 unchanged sentences

and Basis of Presentation

VirnetX Holding Corporation (the “Company,” “we,” “us,” or “our”) We are an Internet security software and technology company with patented technology for Zero Trust Network Access (“ZTNA”) based secure network communications.

Our software and technology solutions, including Secure Domain Name Registry and Technology, VirnetX One™, War Room™, and VirnetX Matrix™ are designed to be device and location-independent, and enable a secure real-time communication environment

for all types of enterprise applications, services, and critical infrastructures.

Our platform allows businesses and other enterprises of all sizes to add a “security umbrella” as an added layer on top of their existing infrastructure to further

reduce risk and bolster security against ever-growing cyberthreats to data, operating systems, other infrastructure products and gateway security controllers .

VirnetX Holding Corporation (the “Company,” “we,” “us,” or “our”) is an Internet security software and technology company with patented technology for Zero Trust Network Access (“ZTNA”) based secure network communications.

software and technology solutions, including Secure Domain Name Registry and Technology, VirnetX One™, War Room™, and VirnetX Matrix™ are designed to be device and location-independent, and enable a secure real-time communication environment for

all types of enterprise applications, services, and critical infrastructures.

Our platform allows government agencies, businesses and other enterprises of all sizes to add a “security umbrella” as an added layer on top of their existing

infrastructure to further reduce risk and bolster security against ever-growing cyberthreats to data, operating systems, other infrastructure products and gateway security controllers .

Note 2 — Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying Condensed Consolidated Balance Sheet as of

March 31, 2024, the Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023, the Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2024 and 2023, the Condensed

Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2024 and 2023, and the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 are unaudited.

These unaudited interim

consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S.

In our opinion, the unaudited interim consolidated financial statements include all adjustments of a

normal recurring nature necessary for the fair presentation of our financial position as of March 31, 2024, our results of operations for the three months ended March 31, 2024 and 2023, and our cash flows for the three months ended March 31, 2024 and

The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year.

These unaudited interim consolidated financial statements

should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 15, 2024.

Unaudited Interim Financial

The accompanying Condensed Consolidated Balance Sheet as of June 30, 2024, the Condensed Consolidated Statements of Operations for the three and six

months ended June 30, 2024 and 2023, the Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2024 and 2023, the Condensed Consolidated Statements of Shareholders’ Equity for the three and six months

ended June 30, 2024 and 2023, and the Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 are unaudited.

These unaudited interim consolidated financial statements have been prepared in accordance with

generally accepted accounting principles in the United States (“U.S.

In our opinion, the unaudited interim consolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of our

financial position as of June 30, 2024, our results of operations for the three and six months ended June 30, 2024 and 2023, and our cash flows for the six months ended June 30, 2024 and 2023.

The results of operations for interim periods are not

necessarily indicative of the results to be expected for a full year.

These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes

included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on March 15, 2024.

Use of Estimates

We prepare our consolidated financial statements in

accordance with U.S.

We prepare our consolidated financial statements in accordance

In doing so, we have to make estimates and assumptions that affect our reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosure of contingent assets and liabilities.

In some cases, we

could reasonably have used different accounting policies and estimates.

In some cases, we could

reasonably have used different accounting policies and estimates.

In some cases, changes in the accounting estimates are reasonably likely to occur from period to period.

Accordingly, actual results could differ materially from our estimates.

To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected.

We base our estimates on past experience and other assumptions that we believe are

reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

extent that there are material differences between these estimates and actual results, our financial condition or results of operations will be affected.

We base our estimates on past experience and other assumptions that we believe are reasonable

under the circumstances, and we evaluate these estimates on an ongoing basis.

We refer to accounting estimates of this type as critical accounting policies and estimates, which we discuss further below.

We have reviewed our critical

accounting policies and estimates with the audit committee of our Board of Directors.

We have reviewed our critical accounting

policies and estimates with the audit committee of our Board of Directors.

Basis of Consolidation

3 unchanged sentences

Revenue Recognition

The Company derives revenue from licensing and royalty fees

from contracts with customers which often span several years.

We account for this revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.

A performance obligation is a promise in a

contract to transfer a distinct good or service to the customer.

A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

arrangements may consist of multiple-element arrangements, with revenue for each unit of accounting recognized as the product or service is delivered to the customer.

With the licensing of our patents, performance obligations are generally satisfied

at a point in time as work is complete when our patent rights are transferred to our customers.

We generally have no further obligation to our customers regarding our technology.

We derive revenue from licensing and royalty fees from contracts with customers which often span several years.

We account for this revenue in

accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.

A contract’s transaction price

is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

Our revenue arrangements may consist of multiple-element arrangements, with revenue for each unit of accounting

recognized as the product or service is delivered to the customer.

With the licensing of our patents, performance obligations are generally satisfied at a point in time as work is complete when our patent rights are transferred to our customers.

generally have no further obligation to our customers regarding our technology.

Certain contracts may require our customers to enter into a

13 unchanged sentences

other investments without readily determinable fair values.

During 2023, we invested $ 2,000 in L2 Holdings LLC and $ 500 in OP Media Inc.

During 2023, we invested $ 2,000 in L2 Holdings, LLC (“Omniteq”) and $ 500 in OP Media, Inc.

These investments are carried at our initial cost less any impairment because we do not have the ability to exercise significant

4 unchanged sentences

reduce the carrying value for the impairment loss with a charge to earnings.

We have no t identified any impairment as of March 31, 2024.

We have no t identified any impairment as of June 30, 2024.

Property and Equipment

5 unchanged sentences

The Company determines if an arrangement is a lease at inception in accordance ASC Topic 842.

Operating lease right-of-use (“ROU”) assets are included in Prepaid expenses, and other assets on the

Condensed Consolidated Balance Sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

ROU assets and

lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, using the risk-free rate.

Concentration of Credit Risk and Other Risks and Uncertainties

Our cash and cash equivalents are primarily maintained at two major financial institutions in the United States.

Deposits held with these financial institutions may exceed the amount of insurance provided on

such deposits.

A portion of those balances are insured by the Federal Deposit Insurance Corporation, or FDIC.

Operating lease right-of-use (“ROU”) assets are

included in Prepaid expenses and other assets on the Condensed Consolidated Balance Sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make

lease payments arising from the lease.

ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term, using the risk-free rate.

Concentration of Credit

Risk and Other Risks and Uncertainties

cash and cash equivalents are primarily maintained at two major financial institutions in the United States.

Deposits held with

these financial institutions may exceed the amount of insurance provided on such deposits.

A portion of those balances are insured by the Federal Deposit Insurance Corporation.

At times, we had funds that were uninsured.

We do not believe that we are subject to any unusual financial risk beyond the normal risk

associated with commercial banking relationships.

We do not believe that we are

subject to any unusual financial risk beyond the normal risk associated with commercial banking relationships.

We have not experienced any losses on our deposits of cash and cash equivalents.

10 unchanged sentences

flows to the related assets’ carrying value.

If such assets are deemed impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising

from the asset.

If such assets are deemed impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from

Research and Development

Research and development costs include expenses paid to

outside development consultants and compensation related expenses for our engineering staff.

Research and development costs include expenses paid to outside

development consultants and compensation related expenses for our engineering staff.

Research and development costs are expensed as incurred.

9 unchanged sentences

The 2017 U.S.

Tax Cuts and Jobs Act changes IRC Section 174, regarding capitalization of book research and development (“R&D”) expenses for income tax purposes.

Effective for tax years beginning in 2022, IRC Section 174 requires the capitalization of book R&D expenses which are capitalized and amortized over 5 years for domestic R&D expenses and over 15 years for foreign R&D expenses.

there has been limited guidance from the IRS on how to quantify the amount of book R&D expenses subject to capitalization, including the indirect expenses supporting the R&D function.

Due to the limited guidance, some assumptions were

made in our estimates.

Tax Cuts and Jobs Act changes IRC Section 174, regarding capitalization of book research and development (“R&D”) expenses

for income tax purposes.

R&D expenses.

To date there has been limited guidance from the IRS on how to quantify the amount of book R&D expenses subject to capitalization, including the indirect expenses supporting the R&D function.

Due to the limited guidance,

some assumptions were made in our estimates.

A valuation allowance is provided for deferred income tax

8 unchanged sentences

and when we believe it is more likely than not that we will recover our deferred tax assets, we will reverse the valuation allowance as an income tax benefit in our statements of operations.

We account for our uncertain tax positions in accordance with U.S.

We account for our uncertain tax positions in accordance with

GAAP, which utilizes a two-step approach to evaluate tax positions.

recognition, requires evaluation of the tax position to determine if based solely on technical merits it is more likely than not to be sustained upon examination.

Step two, measurement, is addressed only if a position is more likely than not to be

In step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement with tax authorities.

If a position does not

meet the more likely than not threshold for recognition in step one, no benefit is recorded until the first subsequent period in which the more likely than not standard is met, the issue is resolved with the taxing authority, or the statute of

limitations expires.

Step one, recognition, requires evaluation of the tax position to determine if based solely on technical merits it is more likely than not to be sustained upon examination.

two, measurement, is addressed only if a position is more likely than not to be sustained.

In step two, the tax benefit is measured as the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be

realized upon ultimate settlement with tax authorities.

If a position does not meet the more likely than not threshold for recognition in step one, no benefit is recorded until the first subsequent period in which the more likely than not standard is

met, the issue is resolved with the taxing authority, or the statute of limitations expires.

Positions previously recognized are reversed if and when we subsequently determine the position no longer is more likely than not to be sustained.

Evaluation of tax positions, their technical merits, and measurements using

cumulative probability are highly subjective management estimates.

of tax positions, their technical merits, and measurements using cumulative probability are highly subjective management estimates.

Actual results could differ materially from these estimates.

Stock-Based Compensation

We account for stock-based compensation using the fair value recognition method in accordance with U.S.

We recognize these compensation

costs on a straight-line basis over the requisite service period of the award, which is generally a vesting term of four years .

recognize forfeitures, if any, when they occur.

In addition, we record stock-based compensation expense for awards granted to non-employees at fair value of the consideration received or the fair value of the equity instruments issued, as they

vest, over the performance period (See Note 5 - Stock-Based Compensation).

We account for stock-based compensation using the fair value

recognition method in accordance with U.S.

We recognize these compensation costs on a straight-line basis over the requisite service period of the award, which is generally a vesting term of four years .

We recognize forfeitures, if any, when they occur.

In addition, we record stock-based compensation expense for awards granted to non-employees at fair value of the

consideration received or the fair value of the equity instruments issued, as they vest, over the performance period (See Note 5 – Stock-Based Compensation).

Earnings per Share

Basic earnings per share are computed by dividing earnings

available to common stockholders by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period

increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued.

Additionally, weighted average shares outstanding for both basic and diluted earnings per

share include all vested restricted shares issued and outstanding.

Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period.

Diluted earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the period increased to

include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued.

Additionally, weighted average shares

outstanding for both basic and diluted earnings per share include all vested restricted shares issued and outstanding.

New Accounting Pronouncements

In December 2023, the FASB issued ASU No.

In December 2023, the FASB issued Accounting

Standards Updated (“ASU”) No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which requires disaggregated information about an entity’s effective tax rate reconciliation as well as information on income tax paid.

The guidance in this ASU is effective for public companies with annual

periods beginning after December 15, 2024.

guidance in this ASU is effective for public companies with annual periods beginning after December 15, 2024.

We plan to adopt the guidance for the fiscal year ending December 31, 2025.

We are currently evaluating the effect adoption of this ASU will have on our consolidated financial statements.

We are currently evaluating the effect adoption of this

ASU will have on our consolidated financial statements.

In March 2024, the FASB issued ASU No.

2024-01, Compensation—Stock Compensation (Topic 718):

Scope Application of Profits Interest and Similar Awards.

guidance in this ASU is effective for public companies with annual periods beginning after December 15, 2024.

Scope Application of Profits Interest

and Similar Awards.

The guidance in this ASU is effective for public companies with annual periods beginning after December 15, 2024.

We plan to adopt the guidance for the fiscal year ending December 31, 2025.

We are currently evaluating the effect adoption of this ASU

will have on our consolidated financial statements.

We are currently evaluating the

effect adoption of this ASU will have on our consolidated financial statements.

Fair Value of Financial Instruments

2 unchanged sentences

A fair value hierarchy prioritizes the inputs used to measure fair value.

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets

or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or

liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

Level 2 measurements utilize either directly or indirectly observable inputs in markets other than quoted prices in active markets.

Our financial instruments are stated at amounts that equal,

or approximate, fair value.

When we estimate fair value, we utilize market data or assumptions that we believe market participants would use in pricing the financial instrument, including assumptions about risk and inputs to the valuation

We use valuation techniques, primarily the income and market approach, which maximizes the use of observable inputs and minimize the use of unobservable inputs for recurring fair value measurements.

Mutual funds:

at the quoted net asset value of shares held.

Our financial instruments are stated at amounts that equal, or

approximate, fair value.

use valuation techniques, primarily the income and market approach, which maximizes the use of observable inputs and minimize the use of unobservable inputs for recurring fair value measurements.

Valued at the quoted net asset value of shares held.

agency and treasury securities :

Fair value measured at the closing price reported on the active market on which the individual securities are traded.

The following tables show the adjusted cost, gross unrealized

gains, gross unrealized losses, and fair value of our securities by significant investment category as of March 31, 2024 and December 31, 2023.

March 31, 2024

at the closing price reported on the active market on which the individual securities are traded.

following tables show the adjusted cost, gross unrealized gains, gross unrealized losses, and fair value of our securities by significant investment category as of June 30, 2024 and December 31, 2023.

June 30, 2024

Adjusted Cost

Cash and Cash

Available for

agency and treasury securities

Available for Sale

treasury securities

December 31, 2023

1 unchanged sentence

Cash and Cash

Available for

Available for Sale

agency and treasury securities

Note 3 — Income Taxes

For the three months ended March 31, 2024, we recognized no income tax benefit on loss before taxes of $ 4,291 , which is an

effective tax rate of 0.0 %.

For the three months ended March 31, 2023, we recognized an income tax benefit of $ 78 on loss before income taxes of $ 4,545 ,

which is an effective tax rate of 1.71 %.

For both 2024 and 2023, the effective rate is lower than the statutory federal rate

primarily due to the change in the valuation allowance.

Our tax years for 2005 and forward are subject to examination by the U.S.

tax authority and various state tax authorities because we utilized the

NOLs and tax credits generated in those years in 2020.

The statute of limitation for those years expires three years after the date of filing 2020 income tax returns.

For the three and six months ended June 30, 2024, we recognized no income tax benefit which is an effective tax rate of 0 %.

For the three and six months ended June 30, 2023, we recognized an income tax benefit of $ 0 and $ 78 , respectively, which is an effective tax rate of 0.0 % and 0.49 %.

The effective tax

rate was lower than the statutory federal income tax rate during 2023 and 2024 primarily due to the change in valuation allowance.

Our tax years for 2005 and forward are

subject to examination by the U.S.

tax authority and various state tax authorities because we utilized the NOLs and tax credits generated in those years in 2020.

The statute of limitation for those years expires three years after October 2021,

the date we filed our 2020 income tax returns.

The California Franchise Tax Board is currently conducting an audit on the Company's 2019, 2020 and 2021

California tax returns.

The outcome of the audit is yet to be determined.

We are required to

recognize the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination.

At March 31, 2024, we have no uncertain tax positions.

Our policy is to recognize interest and penalties accrued on uncertain tax positions as a component of income tax

We had no accrued interest or penalties related to uncertain tax positions at March 31, 2024.

At June 30, 2024, we have no uncertain tax positions.

Our policy is to recognize interest and penalties accrued on uncertain tax positions as a component of income tax expense.

We had no accrued interest or penalties related to uncertain tax positions at June 30, 2024.

Note 4 — Commitments and

Related Party Transactions

We entered into a service

agreement for the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business travel for employees of the Company.

We incurred approximately $ 372

compared to $ 287 in fees and reimbursements to the LLC during the three months ended March 31, 2024 and 2023, respectively.

We pay for the

Company’s usage of the aircraft and have no rights to purchase.

We have a non-exclusive service agreement for the use of an aircraft from K2 Investment Fund LLC (“LLC”) for business travel for employees of the

We incurred approximately $ 315 and $ 686 compared to $ 112 and $ 399 in fees and reimbursements to the LLC during the three and six months ended June 30, 2024 and 2023, respectively.

We pay for the Company’s usage of the aircraft and have

no rights to purchase.

Our Chief Executive Officer and Chief Administrative Officer are the managing partners of the LLC and control the equity interests of the LLC.

We entered into a 12 -month non-exclusive agreement with the LLC for use of the plane at a rate of $ 8 per flight hour, with no minimum usage requirement.

The agreement contains other terms and conditions and can be cancelled by either us or the LLC with 30 days’ notice.

The agreement renews on an annual basis unless terminated by either party.

The agreement with the LLC provides for use of the plane at an initial rate of $ 8 per flight hour which increased to $ 9.8

per flight hour in April 2024.

The agreement contains no minimum usage requirement and includes other terms and conditions.

The agreement can be cancelled by either us or the LLC with 30 days’ notice and renews on an annual basis unless terminated by either party.

Neither party has exercised their termination rights.

See Note 8 for further

discussion of our lease commitments.

– Leases for further discussion of our lease commitments.

Note 5 — Stock-Based

Our stockholders approved the Amended and Restated 2013 Equity

Incentive Plan (the “A&R Plan”) at our annual shareholders’ meeting in June 2023, which added 175,000 shares to the plan.

prior plan expired March 29, 2023;

no further awards will be made under the prior plan, but the A&R Plan will govern awards granted under the prior plan.

The A&R Plan provides for the granting of stock options, restricted stock units

(“RSUs”) and restricted stock.

Options granted under the A&R Plan are granted with an exercise price equal to the fair value of the of our stock on the date of grant.

RSUs and restricted stock are granted at the fair value of our stock on the

date of grant because they have no exercise price.

The fair value of options, RSUs and restricted stock are expensed over the vesting periods.

All options, RSUs and restricted stock are subject to forfeiture if service terminates prior to the

shares vesting.

At March 31, 2024, there were 97,031 shares available for grant under the A&R Plan.

compensation expense included in general and administrative expense was $ 230 and $ 371 , and in research and development expense was $ 258 and $ 311 , for the three months ended March 31, 2024 and 2023, respectively.

During the three months

ended March 31, 2024, we granted 71,000 shares of restricted stock with a weighted average grant date fair value of $ 6.80 .

During the three months ended March 31, 2024, we paid $ 3 in withholding taxes on shares issued upon granting of restricted stock;

the underlying shares were cancelled.

The amounts are reflected as financing costs in the accompanying statement of

No restricted stock was issued during the three months ended March 31, 2023.

No options or RSUs were granted during the three months ended March 31, 2024 or 2023.

No options were exercised during the three months ended March 31, 2024 or 2023, and no shares were issued as a result of vesting RSUs in the three months ended March 31, 2024 or 2023.

As of March 31, 2024

and 2023, the unrecognized stock-based compensation expense related to unvested stock options, RSUs, and restricted stock was $ 2,757 and

$ 3,484 , respectively, which will be amortized over an estimated weighted average period of approximately 2.63 years and 2.47 years, respectively.

During the three months

ended March 31, 2024 we returned 24,750 options, 1,752 RSUs and 6,581 Restricted Stock to the plan due to termination of

During the three months ended March 31, 2023, we returned 2,000 options to the plan due to the 10-year expiration for unexercised options.

Our stockholders approved an amendment to the Amended and

Restated 2013 Equity Incentive Plan (the “Plan”) at our annual shareholders’ meeting in June 2024, which among other things, added 1,000,000

shares to the plan.

The Plan provides for the granting of equity awards including stock options, restricted stock units (“RSUs”) and restricted stock.

Options granted under the Plan are granted with an exercise price equal to the fair value of

our stock on the date of grant.

RSUs and restricted stock are granted at the fair value of our stock on the date of grant because they have no exercise price.

The fair value of options, RSUs and restricted stock are expensed over the vesting

All options, RSUs and restricted stock are subject to forfeiture if service terminates prior to the shares vesting.

At June 30, 2024, there were 1,058,006 shares available for grant under the Plan.

compensation expense included in general and administrative expense was $ 264 and $ 393 , and in research and development expense was $ 196 and $ 289 , for the three months ended June 30, 2024 and 2023, respectively.

Stock-based compensation expense included in general and administrative expense

was $ 494 and $ 764 , and

in research and development expense was $ 454 and $ 600 , for the six months ended June 30, 2024 and 2023, respectively.

During the three

months ended June 30, 2024, we granted 48,000 shares of restricted stock with a weighted average grant date fair value of $ 3.77 .

During the six months ended June 30, 2024, we granted 119,000 shares of restricted stock with a weighted average grant date fair value of $ 5.58 .

six months ended June 30, 2024, we paid $ 3 in withholding taxes on shares of restricted stock;

the grantees surrendered shares of equal

value and those surrendered shares were cancelled.

The amounts are reflected as financing costs in the accompanying statement of cash flows.

restricted stock was issued during the six months ended June 30, 2023.

No options were granted during the three and six months ended June 30, 2024.

During the three and six months ended June 30, 2023, we granted 1,875 options with a weighted average grant date fair value of $ 7 per share.

No options were exercised during the three and six months ended June 30, 2024

No RSUs were granted during the three and six months ended June 30, 2024.

During the three and six months ended June 30, 2023, we granted 1,248 RSUs with a grant date fair value of $ 10

We issued 7,168 shares of common stock as a result of vesting RSUs in the three and six months ended June 30, 2024.

issued 10,763 shares of common stock as a result of vesting RSUs in the three and six months ended June 30, 2023, for which we

paid $ 5 in withholding taxes.

As of June 30, 2024

and 2023, the unrecognized stock-based compensation expense related to unvested stock options, RSUs, and restricted stock was $ 2,374

and $ 4,082 , respectively, which will be amortized over an estimated weighted average period of approximately 2.37 years and 2.25 years,

respectively.

During the six months

ended June 30, 2024, we returned 32,750 options, 2,210 RSUs and 7,138 shares of restricted stock to the plan due to termination of employees and the

expiration of unexercised options.

Note 6 — Equity

During the three months ended March 31, 2024 we issued 71,000 shares of restricted stock.

During the three months ended

March 31, 2023, we did no t issue restricted stock, no r did

we issue any shares for vested options or RSUs.

During the six months ended June 30, 2024, we issued 119,000

shares of restricted stock, as well as 7,168 shares of common stock as a result of vesting RSUs.

During the six months ended June

30, 2023 we issued 10,763 shares of common stock as a result of vesting RSUs.

2020, we issued warrants for the purchase of 1,250 shares of common stock at an exercise price of $ 115 per share, exercisable on the date of grant, expiring in April 2025 .

2 unchanged sentences

the grant date was estimated utilizing the Black-Scholes valuation model with the following weighted average assumptions (i) dividend yield on our common stock of 0 percent (ii) expected stock price volatility of 97 percent (iii) a risk-free interest rate of 0.27 percent and (iv) and expected option term of 5

March 31, 2024

June 30, 2024

April 30, 2025

Note 7 — Litigation (all

dollar amounts in this section are expressed in thousands except for rates per device)

(Case 6:12-CV-00855-LED) (“Apple II”)

This case began on November 6, 2012, when we filed a complaint against Apple Inc.

(“Apple”) in United States District Court (“USDC”) in

which we alleged that Apple infringed on certain of our patents, (U.S.

6,502,135, 7,418,504, 7,921,211 and 7,490,151).

We sought damages and injunctive relief.

The accused products include the iPhone 5, iPod Touch 5th Generation, iPad

4th Generation, iPad mini, and the latest Macintosh computers.

The USDC entered a Final Judgment and issued its Memorandum Opinion and Order regarding post- trial motions, affirming the jury’s verdict of $ 502,600 and granting VirnetX motions for supplemental damages, a sunset royalty, and the royalty rate of $ 1.20 per infringing iPhone, iPad and Mac products, pre-judgment and post-judgment interest and costs.

Apple filed a notice of appeal with the United States Court of Appeals for the Federal

Circuit (“USCAFC”) in the Apple II case.

On October 9, 2018, USCAFC docketed the appeal as Case No.

19-1050 - VirnetX Inc.

On November 22, 2019, the USCAFC issued

an opinion affirming the district court’s findings that Apple is precluded from making certain invalidity arguments and that Apple infringed the ‘135 and ‘151 patents; reversing the USDC’s finding that Apple infringed the ‘504 and ‘211 patents; and

remanding the case for proceedings on damages.

Apple sought panel and en banc rehearing, which the USCAFC denied on February 10, 2020.

On February 22, 2021, the USCAFC docketed the appeal as Case No.

Apple’s opening brief was filed on June 2, 2021.

VirnetX filed

its responsive brief on July 26, 2021.

Apple filed its reply brief on September 13, 2021.

Oral arguments were held on September 8, 2022.

On March 31, 2023, the USCAFC issued its decision vacating the USDC’s judgement in this matter and remanding it

back to the USDC with instructions to dismiss the case as moot.

On July 14, 2023 the District Court vacated its prior Final Judgment against Apple dated January 6, 2021 and dismissed the case as moot.

On May 1, 2023, VirnetX filed a petition for

panel rehearing.

On June 27, 2023, the petition for panel rehearing was denied, and the mandate issued on June 30, 2023.

VirnetX filed a petition for a writ of certiorari with the United States Supreme Court, on September 20, 2023.

On February 20,

2024, the Supreme Court denied our petition.

This case is now closed.

Mangrove Partners Master Fund, Ltd., Apple Inc.

(USCAFC Case 20-2271) and VirnetX Inc.

Partners Master Fund, Ltd., Apple Inc., and Black Swamp, LLC (USCAFC Case 20-2272)

On September 15, 2020, we filed with the USCAFC an appeal of the invalidity findings by the Patent Trial and Appeal Board (“PTAB”) in

inter-partes review proceedings IPR2015-01046 and IPR2016-00062 involving our U.S.

6,502,135, and an appeal of the invalidity findings by the PTAB in inter-partes review proceedings IPR2015-1047, IPR2016-00063, and IPR2016-00167

involving our U.S.

On September 25, 2020, the USCAFC issued an order consolidating the two appeals.

On December 15, 2020, we filed a motion to

vacate the PTAB decisions below and to remand these appeals to the PTAB.

On March 16, 2021, the USCAFC denied the motion without prejudice to us raising the challenges made in the motion in our opening brief.

Our opening brief was filed on June 7,

On June 23, 2021, the USCAFC entered an order directing us (and parties in other appeals that raised Appointments Clause challenges) to

file a brief explaining how they believe their cases should proceed in light of the Supreme Court’s decision in United States v.

Arthrex, Inc., 141 S.

On July 7, 2021, we filed a brief in response to the court’s order.

parties, including the U.S.

Patent and Trademark Office (“USPTO”) filed their responses on July 21, 2021.

On August 19, 2021, USCAFC issued an order remanding these appeals for the limited purpose of allowing VirnetX the opportunity to request

rehearing of the PTAB’s final written decisions by the Director of the USPTO.

The USCAFC retained jurisdiction over the appeals in the meantime.

On September 20, 2021, we filed our requests for Director rehearing with the USPTO.

On October 29,

2021, our requests for Director rehearing were denied.

We subsequently filed an amended opening brief to the USCAFC on December 10, 2021, the other parties filed response briefs on February 2, 2022, and we filed a reply brief on February 22, 2022.

All the briefings have been completed.

The oral arguments in this matter were held on September 8, 2022.

On March 30, 2023, the USCAFC issued its decision affirming PTAB’s decisions finding certain claims of the ‘135 patent and the ‘151 patent to

be unpatentable.

On June 5, 2023, VirnetX filed a petition for panel rehearing.

On June 22, 2023, the petition for panel rehearing was denied, and the mandate issued on June 29, 2023.

VirnetX filed a petition for a writ of certiorari with the

United States Supreme Court, on September 20, 2023.

On February 20, 2024, the Supreme Court denied our petition.

This case is now closed.

Hirshfeld (USCAFC Case 17-2593, -2594)

On September 22, 2017, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes review proceeding

IPR2016-00693 involving our U.S.

7,418,504, and an appeal of the invalidity findings by the PTAB in inter-partes review proceeding IPR2016-00957 involving our U.S.

On September 16, 2021, USCAFC issued an order

remanding these appeals for the limited purpose of allowing VirnetX the opportunity to request rehearing of the PTAB’s final written decisions by the Director of the USPTO.

The USCAFC retained jurisdiction over the appeals in the meantime.

October 18, 2021, we filed our requests for Director rehearing with the USPTO.

On January 7, 2022, our requests for Director rehearing were denied.

On January 21, 2022, we informed the USCAFC about the denial of Director rehearing and requested

that the court dismiss the appeal involving IPR2016-00957 as moot and vacate the PTAB’s underlying decision.

On April 4, 2022, the USCAFC vacated the PTAB’s decision in IPR2016-00957 and remanded Appeal No.

17-2594 with instructions to dismiss.

the April 4, 2022 order, the USCAFC further set a briefing schedule, in Appeal No.

VirnetX filed its opening brief on September 12, 2022.

The USPTO filed its response brief on December 20, 2022.

VirnetX filed its reply brief on February

On April 18, 2023, VirnetX filed a motion to hold this appeal in abeyance pending the disposition of any petition for rehearing in the No.

20-2271, -2272 appeal, and pending the United States Supreme Court’s disposition of a pending

petition for a writ of certiorari in Arthrex, Inc.

Smith & Nephew, Inc.

That motion was denied on June 1, 2023.

20, 2023, the USCAFC issued a decision finding the appeal moot in view of its concurrent decision in USCAFC No.

VirnetX sought rehearing, which was denied, and the mandate to close the case was issued on January 12, 2024.

This case is now

Cisco Systems, Inc.

(USCAFC Case 19-1671)

On March 18, 2019, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding

95/001,679 involving our U.S.

On October 5, 2021, USCAFC issued an order remanding these appeals for the limited purpose of allowing VirnetX the opportunity to request rehearing of the PTAB’s final written decisions by the

Director of the PTO.

The USCAFC retained jurisdiction over the appeals in the meantime.

Our request for Director rehearing with the PTO was filed on November 5, 2021.

On January 10, 2022, our request for Director rehearing was denied.

the USCAFC about the denial of Director rehearing.

VirnetX’s opening brief was filed on June 23, 2022.

The USPTO’s response brief was filed on August 2, 2022, and Cisco’s response brief was filed on September 2, 2022.

VirnetX filed its reply brief

on October 7, 2022.

On April 18, 2023, VirnetX filed a motion to hold this appeal in abeyance pending the disposition of any petition for rehearing in the No.

20-2271, -2272 appeal, and pending the Supreme Court’s disposition of a pending petition

for a writ of certiorari in Arthrex, Inc.

Smith & Nephew, Inc.

The motion, filed on April 18, 2023, was denied on June 1,

On October 20, 2023, the USCAFC issued a decision finding the appeal moot in view of its concurrent decision in USCAFC No.

22-1523 and its prior decision in USCAFC No.

VirnetX sought rehearing, which was denied, and the mandate to

close the case was issued on January 12, 2024.

This case is now closed.

(USCAFC Case 22-1523) (“Apple Reexam I”)

On March 10, 2022, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination proceeding

95/001,682 involving our U.S.

Our opening brief was filed on August 22, 2022.

Apple and USPTO each filed a response brief on December 28, 2022.

VirnetX filed its reply brief on February 8, 2023.

On April 18, 2023, VirnetX

filed a motion to hold this appeal in abeyance pending the disposition of any petition for rehearing in the No.

20-2271, -2272 appeal, and pending the Supreme Court’s disposition of a pending petition for a writ of certiorari in Arthrex, Inc.

Smith & Nephew, Inc.

22-639, which was denied on June 1, 2023.

On October 20, 2023, the USCAFC issued a decision affirming

the PTAB’s invalidity findings.

VirnetX sought rehearing, which was denied, and the mandate to close the case was issued on January 12, 2024.

This case is now closed.

Note 7 — Litigation

22-1997 ) (“Apple Reexam II”)

2 unchanged sentences

On October 17, 2022, we filed a motion to remand the appeal in light of the PTAB’s refusal to permit Director rehearing.

On January 23, 2023, the USCAFC denied that motion without prejudice to the

parties raising their arguments in the merits briefs.

On January 23, 2023, the USCAFC denied that motion without prejudice to

the parties raising their arguments in the merits briefs.

VirnetX opening brief was filed on May 8, 2023, and Apple and the USPTO each filed a response brief on July 24, 2023.

VirnetX filed its reply brief on September 1, 2023.

On April 10, 2024, we

filed a motion voluntarily dismissing the appeal, which USCAFC granted on April 11, 2024.

This case is now closed.

Cisco Systems, Inc.

(USCAFC Case 22-2234)

On September 16, 2022, we filed with the USCAFC an appeal of the invalidity findings by the PTAB in inter-partes re-examination

proceeding 95/001,851 involving our U.S.

We filed our opening brief on February 28, 2023.

Cisco’s response brief was filed on May 10, 2023, and VirnetX reply brief was filed on June 21, 2023.

On October 20, 2023, the USCAFC

issued a decision affirming the PTAB’s invalidity findings.

The mandate to close the case was issued on December 26, 2023.

On April 10, 2024,

we filed a motion voluntarily dismissing the appeal, which USCAFC granted on April 11, 2024.

This case is now closed.

10 unchanged sentences

On April 3, 2024, VirnetX and Cisco filed a joint stipulation dismissing the appeal and cross-appeal.

USCAFC issued an order dismissing the appeal and cross-appeal on

April 8, 2024.

USCAFC issued an order dismissing the appeal and cross-appeal

on April 8, 2024.

This case is now closed.

Other Legal Matters

One or more potential intellectual property infringement claims may also be available to us against certain other companies who have the

resources to defend against any such claims.

Although we believe these potential claims are likely valid, commencing a lawsuit can be expensive and time-consuming, and there is no assurance that we could prevail on such potential claims if we made

we are not a party to any other pending legal proceedings and are not aware of any proceeding threatened or contemplated against us.

From time to time, we are subject to various legal proceedings, the outcomes of which are inherently uncertain.

We record any potential gains related to legal proceedings only after cash is collected.

liability when it is probable that a loss has been incurred and the amount is reasonably estimable, the determination of which requires significant judgment.

As additional information becomes available, we reassess our potential liability and may

revise our estimates.

Such resolutions could have a material impact on future quarterly or annual results of operations.

One or more potential intellectual property infringement claims may also be available to us against certain other companies who have

the resources to defend against any such claims.

Although we believe these potential claims are likely valid, commencing a lawsuit can be expensive and time-consuming, and there is no assurance that we could prevail on such potential claims if we

Note 8 — Leases

1 unchanged sentence

The operating lease requires monthly payments of $ 4.6 and expires in October 2025 .

At March 31, 2024, our ROU asset and lease liability totaled $ 80 .

Lease expense totaled $ 14 for both the three months ended

March 31, 2024 and 2023.

June 30, 2024, our ROU asset and lease liability totaled $ 68 .

Lease expense totaled $ 14 and $ 28 for the three and six months ended June 30, 2024.

Lease expense totaled $ 13 and $ 27

for the three and six months ended June 30, 2023.

We lease a facility in Utah to be used for technical integration and as a training facility.

This operating lease requires monthly payments starting at $ 72 , includes periodic increases, provides six months of free rent, and expires in April 2029.

At March 31, 2024, our ROU asset and lease liability totaled $ 3,364

and $ 3,641 , respectively.

Lease expense totaled $ 210 for the three months ended March 31, 2024.

We also lease a

facility in California for corporate promotional and marketing purposes which was prepaid at inception and expires in 2025.

In March 2024, we renewed the lease.

The renewal period begins in 2025, continues through 2035, and requires

either a single payment of $ 6,000 or annual payments each March beginning at $ 600 , increasing annually, for a total commitment of approximately $ 7,500 .

At March 31, 2024, our ROU asset totaled $ 5,803 and our lease liability totaled $ 5,551 .

Lease expense totaled $ 98 and $ 75 , for the three months ended March 31, 2024 and 2023.

Payments due under the above leases as of March 31, 2024 are as follows:

This operating lease requires monthly payments starting at $ 72 , includes periodic increases, provides six months

of free rent, and expires in April 2029.

At June 30, 2024, our ROU asset and lease liability totaled $ 3,233 and $ 3,719 , respectively.

Lease expense totaled $ 210

and $ 419 for the three and six months ended June 30, 2024.

We also lease a facility in California for corporate promotional and marketing purposes which was prepaid at inception and expires in 2025.

In March 2024, we

renewed the lease recording an ROU asset and lease liability of $ 5,512 .

The renewal period begins in 2025, continues through

2035, and requires either a single payment of $ 6,000 or annual payments each March beginning at $ 600 , increasing annually, for a total commitment of approximately $ 7,500 .

At June 30, 2024, our ROU asset totaled $ 5,778 and our lease

liability totaled $ 5,670 .

Lease expense totaled $ 143 and $ 241 for the three and six months ended June 30, 2024, and $ 75 and $ 150 for the three and six

months ended June 30, 2023.

Payments due under the above leases as of June 30, 2024 are as follows:

Less imputed interest

We have a service agreement for the use of an aircraft from a related party discussed in more detail in Note 4.

We incurred approximately $ 372 compared to $ 287 in

rental fees and reimbursements to the entity during the three months ended March 31, 2024 and 2023, respectively.

We have a service agreement for the use of an aircraft from a related party discussed in more detail in Note 4 – Commitments and Related Party Transactions.

We incurred approximately $ 315 and $ 686 in rental fees and reimbursements to the entity during the three and six months ended June 30, 2024 compared to $ 112 and $ 399 incurred during the three

and six months ended June 30, 2023.

Note 9 — Earnings Per Share

Basic earnings per share are based on the weighted average number of common shares outstanding for the period.

Diluted earnings per share are based on the

weighted average number of common shares and potentially dilutive common shares outstanding.

Unvested restricted shares ( 92,317 in 2024 and zero in 2023) are excluded from weighted average shares outstanding.

Potential common shares outstanding principally include stock options, RSUs and

warrants, excluding any potentially dilutive shares convertible at a price higher than the closing price of our stock at the end of each reporting period.

The following table shows the computation of basic and diluted earnings per share for the three

months ended March 31, 2024 and 2023 (in thousands, except per share amounts):

Basic earnings per share are based on

the weighted average number of common shares outstanding for the period.

Diluted earnings per share are based on the weighted average number of common shares and potentially dilutive common shares outstanding.

Unvested restricted shares ( 138,633 in 2024 and zero in 2023) are

excluded from weighted average shares outstanding.

Potential common shares outstanding principally include stock options, RSUs and warrants, excluding any potentially dilutive shares convertible at a price higher than the closing price of our

stock at the end of each reporting period.

The following table shows the computation of basic and diluted earnings per share for the three and six months ended June 30, 2024 and 2023 (in thousands, except per share

Three Months Ended

Weighted-average basic shares outstanding

Effect of dilutive securities

Weighted-average diluted shares

Basic (loss) per share

Diluted (loss) per share

We incurred a net loss for the three months ended March 31,

2024 and 2023;

therefore, all potentially dilutive securities representing shares of common stock ( 322,215 in 2024 and 367,656 in 2023) were excluded from the computation of diluted earnings per share, because their effect would have been antidilutive.

Weighted-average

basic shares outstanding

dilutive securities

Weighted-average

diluted shares

Basic (loss) per

Diluted (loss)

We incurred a net

loss for the three and six months ended June 30, 2024 and 2023;

therefore, all potentially dilutive securities representing shares of common stock ( 305,781

at June 30, 2024 and 348,729 at June 30, 2023) were excluded from the computation of diluted earnings per share, because their effect

would have been antidilutive.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements